Musings on business value, sale preparation, sale negotiations, sale structure.

Archive for September, 2018

Tetramerginisation

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Yeah. It’s a real word. I made it up. In the world of covfefe, meandos, and expropriation, perhaps it too, will catch on.

In the merger of two entities, nothing is as simple as just adding two balance sheets together, or assuming that 1 profit plus 3 profits will equal 4 profits.

We feel that the end product of a merger of two entities should look something like this:

2018-09-10_20-40-13s

It may end up being a bit rough around the edges, but the idea is to create value, at least equal to the sum of its parts soon after the close.

But too often, the idea of making an acquisition is a lot more exciting than the eventual outcome. The result of poor planning and consideration is the destruction of value:

2018-09-10_20-45-24s

M&A history is littered with grand announcements of mergers “which will be finalised as soon as proper studies have been conducted”. A year later, the deals are called off. In the meantime, both entities have seen the destruction of value. The value of shares have been all over the place. Staff members have started looking for other jobs, worried about their prospects. Competitors are forwarding all manner of rumours around the very businesses which are trying to grow their value.

If yours is a relatively small business, then you have the advantage of being able to plan and plot carefully with the owners of the other business, well in advance of even telling your staff. If it is not going to work, it is not going to work. If you are going to struggle to make it work, at least you can be aware of the difficulties which are coming your way.